By Robert E. Wright, Nef Family Chair of Political Economy, Augustana University. For South Dakota Festival of Books, Brookings, SD, 24 September 2016.
Since its publication in 2015, Little Business on the Prairie:Entrepreneurship, Prosperity, and Challenge in South Dakota has been a critical success but a commercial failure. When I’ve asked South Dakotans why they are not interested in buying, for half the price of a box of new thirty aught six shells, the first economic history of their state, the first history of entrepreneurship in their state, I’ve gotten responses that all boil down to what one cowboy-looking smart alec said: It must be an awfully short book. Well, it is not the longest of the 17 other books I’ve published, but it could have been. South Dakotans should be proud of what their state has done economically, without the aid of any fossil fuel deposits to speak of, by fostering innovation and self-help. [A less charitable hypothesis also presented itself at the book festival: too many SDers are uncomfortable with 5 syllable words.]
Surely the problem is not with the book’s main title as every self-respecting South Dakotan knows that the real Laura Ingalls Wilder grew up in South Dakota, not in Minnysooota like the television character of the same name [CLICK ... NB, The CLICK notations indicated change to the next slide. But I'm not posting the slides here as most are from the book I want you to buy! If you want to see the slides buy the book or go to the presentation. ;-)]. Maybe I should have used the term proprietorship instead of entrepreneurship, a French word that tends to evoke images of great inventors like Benjamin Franklin or Thomas Edison. South Dakota hasn’t really produced any of those, yet, but neither have many counties in the eastern part of the country with populations larger than those of this state. Moreover, early South Dakota produced a number of interesting inventors before invention became the almost exclusive playground of large corporations and private universities.
For example [CLICK], in 1892 Henry Hall of Hill City patented a go-devil, a mining hand cart and track mechanism. Frank Carpenter of Deadwood patented in 1899 an improved process of separating precious metals from their ores that was especially adapted to the dry ores found in the Black Hills and central Colorado. Ten years earlier, in Sioux Falls, Isaac Lawshe patented a device that kept time for musicians, like a metronome. In 1893, Yankton’s Theodore Mehring patented an improved beer faucet attachment. In Huron the following year Godfried Laube patented a gopher extermination system remarkably similar to the one employed by Bill Murray in the movie Caddyshack some fourscore years later [CLICK]. Laube also improved the clothes washing machine and a wheel especially designed for the board walks commonly employed as sidewalks in prairie towns.
In 1896, Wallace Houts of Parker teamed up with an Iowan to patent an improved automated telephone switchbox. Telephones, like cars, were really important to early South Dakotans. That same year, Walter Gripman of Sioux Falls received a patent for a new and improved lathe attachment “designed for cutting gears, grooving taps and reamers, splining shafts, cutting T-slots in chucks, and for various other work done on a milling machine.” In 1898, Elmer Gragert of White Rock in the farthest reaches of northeastern South Dakota applied for a patent for an improved crank to be used “in actuating wheels, shafts, &c.” Two years later, Woonsocket’s Charles Holmberg sought a patent for an improved piston engine. Abraham Lincoln Jones of Canton invented a new type of sewer pipe, one he believed would be more watertight and easier to install than the ones commonly in use in 1903.
Even the automobile was improved in South Dakota. [CLICK] Here is the Fawick Flyer, the first four door automobile made in America. Good thing Thomas Fawick put the steering wheel on the wrong side of the vehicle or Sioux Falls might be a barren industrial wasteland today, overrun by pheasants like Detroit. [CLICK] I’m not kidding about the second part of that statement, as the Motor City’s many blighted areas are chock full of ringnecks like these.
And the first part of the claim is not quite as outrageous as it might at first appear because South Dakotans adopted the automobile with alacrity. It was seventh in the nation in per capita ownership in 1928 because automobiles helped to reduce the state’s vast expanses, the tyranny of distance as it was sometimes termed. Automobiles spurred quite a bit of entrepreneurship as blacksmiths and liverymen gave up shodding and feeding horses for fixing engines and pumping gas. [CLICK] The automobile made the tourism industry more competitive by opening up entire routes, like Federal Highway 14, the “Black and Yellow Trail” as it was called, to entrepreneurs formerly relegated to the larger towns where passenger trains made regular stops. Over the course of the 1920s, tourist camps turned into strings of motels, or hotels that catered to people in motor coaches.
Air travel, by balloon and airplane, was also rapidly adopted by South Dakotans who wanted to overcome their state’s vast expanses. In April 1897, Henry Heintz (1848-1918), the postmaster of Elkton, received a patent for an airship, a semi-rigid balloon powered with an engine, or an early dirigible in other words. It took him and Aurora blacksmith Frank Wulf three years to develop a prototype, which promptly crashed after leaping just eight feet off the ground. A native of Luxembourg, Heintz formed the Northwestern Aerial Navigation Company in early 1902 to build and operate airships. The company was apparently a vehicle for a bid at a prize at the Louisiana Purchase Exposition to be held in St. Louis in 1904. Heintz and his machine never appeared but others in the state continued to experiment with lighter than air vehicles [CLICK].
The first airplane demonstration flight in the state occurred in April 1911 in Rapid City and was an act of entrepreneurship according to the local paper. “This event was of some importance. Rapid City had demonstrated that she had the enterprise to secure the first attraction of this kind ever offered in the state.” The event was successful enough to induce the State Fair Board to hire the Curtiss Exhibition Company to fly “every day of the fair, morning and afternoon” during the annual September state fair in Huron. It drew huge, enthusiastic crowds. More shows soon followed, including ones in Deadwood and Yankton, and the State Fair in 1912 enjoyed record attendance. South Dakota also attracted a large number of daredevils or stunt fliers who believed that the state’s air quality and climate were ideal for sensational flying. [CLICK] By the early 1920s, South Dakota had its own airline, Rapid Air Lines, Inc. of Rapid City. It was also home to Nellie Zabel Willhite, a member of the 99 Club, or one of the first 99 women in America to become a licensed pilot.
I could go on and on about South Dakota inventors but I won’t because entrepreneurship is about much more than invention, or even novel innovation [CLICK]. In fact, economists have identified three types of entrepreneurs: innovative, replicative, and extractive. As just described, early South Dakota did produce some inventive or innovative-style entrepreneurs. It also produced a few extractive ones but thankfully the state has been able to tame their worst excesses because, by definition, extractive entrepreneurs engage in theft, sometimes lawful theft but often of the Tony Soprano variety. Unlike the other two types of entrepreneurs, they are bad for economic growth. There is a whole book just waiting to be written on bank robberies in this state.
The bread and butter, or rather corn palace and chislic [CLICK], of South Dakota’s economic history are replicative entrepreneurs, or common folk who take somebody else’s innovation and extend it to new markets, typically geographically. They include farmers, ranchers, shopkeepers, professionals, and everybody else who is self-employed, who works on his or her own account rather than for some big, distant corporation. Without replicative entrepreneurs, South Dakota would never have become inhabited.
In fact, the first replicative entrepreneurs in the state hailed from Asia, where they learned from some innovative entrepreneur how to kill and process hairy elephants [CLICK] and sundry other species of megafauna, most unfortunately long since extinct. Here is a stone etching of a bison hunt, one of the many illustrations in the book [CLICK]. Later, other replicative entrepreneurs, also descended from Asian immigrants, came from the south with corn and the knowledge of how to grow it. Evidence of their long residence can be found just outside of Sioux Falls at Blood Run, at the Archeodome on the south side of Lake Mitchell [CLICK], and numerous other sites along the state’s undammed river bottoms.
The first replicative entrepreneurs of Euroamerican descent in the state were also hunters and trappers after fur, meat, and bones, including the bones of long extinct dinosaurs [CLICK]. Then came the placer miners in the Black Hills [CLICK]. Cattlemen soon followed, along with wholesalers, retailers, and professionals. Then came waves of corn and small grain growers, also followed by commercial and professional service providers from teachers to lawyers and pharmacists to doctors [CLICK]. The vast majority came as proprietors of their own little businesses, not as the employees of corporations, though some who failed as entrepreneurs or who wanted to set themselves up as proprietors would work for one of the railroads, mining companies, lumber corporations, or meat packing plants for a spell [CLICK].
In fact, South Dakota was home to numerous corporations, mostly small ones that can also be thought of as examples of replicative entrepreneurship. Circa 1910, just 30 years after statehood, South Dakota was home to 2,151 for-profit corporations active enough to be taxed by the federal government. As this graph shows [CLICK], most were small. Three in four had capitals less than $25,000 and 9 out of 10 had capitals less than $100,000.
Almost one in three early South Dakota corporations were in the financial sector, mostly small unit banks spread across the state even in hamlets like Carthage, Doland, Hurley, Kimball, Summit, Toronto, Underwood, and Winfred. Those banks provided short term financing for entrepreneurs large and small. Here is the breakdown by economic industry [CLICK]. Within those general categories were numerous businesses engaged in a variety of interesting pursuits including playing baseball, ferrying people across rivers, harvesting ice, staging operas, and digging wells.
Early corporations were not all located in Sioux Falls and Rapid city, either [CLICK]. The state average was 3.68 corporations per 1,000 residents. Those counties with more than 4.5 corporations per 1,000 residents are here underlined in red. Urban areas throughout the state and the Black Hills counties tended to have more corporations per capita, as did some lightly populated counties that still needed several banks, telephone companies, and so forth.
As this graph shows [CLICK], half of the corporations in business in South Dakota in 1910 had formed within the last five years. That was typical of highly dynamic, highly entrepreneurial economies where many tried and many failed. Business failure was never looked down upon in South Dakota, as long as one failed honorably, with ones boots off so they were available to creditors.
In fact, many South Dakotans were serial entrepreneurs who moved from proprietorship to proprietorship as the economic winds and their personal preferences dictated. Some were homegrown but early on most came from other states or countries. In 1907, for example, a serial entrepreneur and author named Frank Moody Mills, who had experience as a steamboat clerk, publisher, and electricity magnate in exotic places like Illinois, Iowa, and Michigan, established the Sioux Falls Traction Company over the objections of rivals who claimed to have offered the city better terms [CLICK]. Voters thought otherwise, approving a 30 year franchise. Mills came to Sioux Falls on the behest of his son Dan, who noted that Sioux Falls was “the largest small city in the United States without a street railway.” Later, Mills also developed intercity bus lines that connected Sioux Falls to nearby cities in adjoining states as well as towns in southeastern South Dakota.
Other serial entrepreneurs were less precocious than Mills. Charles Allen, for example, was a mule driver on a wagon train, a soldier, a homesteader, and a blacksmith before becoming a newspaper reporter. Tom Brick did unskilled agricultural work, then worked as a carpenter’s helper, then tried homesteading, then assembled machinery in Aberdeen, then worked as a millwright in Sturgis, then tried homesteading again before bartering his claim for an automobile that he ran as a taxi in Vermillion and Yankton during the Great War [CLICK], while the state’s younger men, like Lieutenant Cleveland Abbott, who was born in Yankton in 1892, were serving in France. For two years Brick was Vermillion’s only policeman before he bought a candy store and ice cream parlor. He sold that business to his son in 1939, a few years after Prohibition ended, and opened a liquor store. During his co-called retirement, Brick repaired firearms and made violins. He died in 1979, aged 98. Serial entrepreneur Kate Reynolds, a African-American woman, ran a restaurant but then worked as a nurse and a miner before owning a boardinghouse, a timber dealership, and a dairy operation.
Do not be surprised by Reynolds as early South Dakota was home to many female entrepreneurs and some entrepreneurs of color. Up to thirty percent of homesteads in some areas of the state were owned and operated by single women, many of whom doubled as laundresses, missionaries, teachers, or ladies of the night. Widespread proprietorship made the state a relatively convivial place for African-Americans, women, homosexuals, and Indians. For every business that banned members of some group, a business arose to serve that group. Russian immigrant and single mom Bertha Martinksy, for example, sold to Indians on credit. An Orthodox Jew, Martinksy at age 19 fled anti-Semitism at home, the Czar’s notorious “Pale of Settlement.” After a stint in the Eastern European Jewish district of Des Moines, she remarried after being abandoned by her first husband, a peddler, soon after the birth of their third child. Unimpressed by her second husband, a common laborer who gave her little more than two daughters, Martinksy left for the promise of a better life in South Dakota. It was not to be, not at first anyway, as she barely scratched a subsistence from poor, dry land seven miles northwest of Interior, now part of Buffalo Gap National Grassland [CLICK]. She eventually abandoned the claim, which nobody would buy even for just the back taxes.
Martinksy moved her shack to Interior, where she baked bread and doughnuts that she sold to the denizens of the Pine Ridge reservation. Learning Lakota as she went, she began to sell beads and other goods out of a wagon at rodeos and powwows. Her reputation for fair dealing with the natives, combined with her willingness to extend them credit, ensured their continued patronage when she moved her business to Kadoka in 1917. Her general store, which ran under the somewhat clunky slogan “if it’s to eat or wear or use, get it at Martinsky’s,” carried clothing, dry goods, and groceries. Martinksy lived in frugal quarters at the rear of the store, which was said to smell of apricots, vinegar, and dry goods. Her penurious ways, and good business practices, allowed her to save up to buy a building that she leased to a creamery company, and several other properties. She also established a tourist camp that unlike her early foray into agriculture she was able to sell for a profit.
I hope that you see that these are more than just interesting stories. Early entrepreneurs paved the way for South Dakota’s business-friendly climate today in several ways. First, entrepreneurship begets more entrepreneurship by providing would-be entrepreneurs with role models to emulate. Somebody who knows a self-employed individual or small business owner is much more likely to become self-employed or to start his or her own small business than somebody who knows only employees. South Dakota’s leaders have never had to wring their hands, wondering how to attract entrepreneurs to the state. They have always been here and hopefully always will be.
Second, business owners planted deep stakes in their communities that they wanted state and local governments to foster rather than to exploit. They created a government and political climate that is not just pro-business but pro-efficient government and that has kept state taxes and debt much lower than in most other states without starving the economy of important public goods. That means that South Dakotans who want to start their own businesses can do so more easily than the denizens of other states can and the results are palpable.
A Silicon Arroyo, for lack of a better term, is starting to develop along the I-29 corridor connecting USD’s Vermillion to Augustana’s Sioux Falls to SDSU’s Brookings. That is the same area that attracted many light industries disgusted with Minnesota’s high tax-high regulation regime in the 1970s. And of course Bill Janklow was able to create a Plastic Falls in the state by luring numerous credit card issuers here [CLICK]. Although the influx of corporations created many jobs, they also spurred entrepreneurship. South Dakota remains one of the bastions of self-employment, even outside of the agricultural sector, which was one of the reasons why the economy remained so buoyant in the wake of the Panic of 2008 and the Great Recession that followed.
Of course South Dakota’s economic history is much richer, no pun intended, than what I can relate to you in the few minutes we have together. That is why I wrote the book, hint, hint [CLICK].
But I also wrote the book to warn South Dakotans and indeed all Americans about the main threat to our economic prosperity. No, it is not Brexit or some international trade agreement or even illegal immigration. What could ruin us is a reduction of economic freedom, of the ability to form our own businesses cheaply and easily when we see fit. I know that this is the biggest threat we face, aside of course from another Hillbilly administration or a Trumpageddon [CLICK], because the federal government has run an insidious natural experiment in our state for the last century and a half. It allowed most South Dakotans a large degree of economic freedom but subjected a minority, like Flossie Bear Robe [CLICK], to the most egregious limitations, extending from their education through healthcare through even their right to own real property. The economically free part has one of the soundest economies in the entire nation, and a very green economy not reliant on fossil fuel extraction at that. The unfree part, by contrast, is the poorest part of the entire nation, even counting the backwoods of Alabama, Mississippi, or Alaska [CLICK]. I refer, of course, to the state’s large Indian Reservations. What the casino revolution has taught us is that Indians were not poor because they were Indians, they were poor because the federal government prevented them from getting rich by limiting their economic freedom.
The bigger lesson is that if the wrong policies had been implemented, Sioux Falls could have looked a lot like Pine Ridge. And it may in the future if Washington bureaucrats and South Dakotan voters continue to restrict economic freedom. Maybe that is too heavy a message for a Saturday morning but we have to keep the economy vibrant lest we pass on to our grandchildren a large national debt, a failed system of social security, and a moribund economy.
Thank you.Any questions? [CLICK]